Daiwa has released a research report, lowering the earnings forecast for Want Want China (00151) by 2-4% for the fiscal years 2025 to 2027, while raising the target price to HK$5.9. Due to limited upside potential in stock price, the rating has been downgraded from 'buy' to 'hold'.
Daiwa released a research report citing the latest business updates from Want Want's management, indicating a further weakening of summer sales momentum compared to the second quarter, mainly due to weak demand, weather factors, and destocking in channels, consistent with most China foods and beverage companies. Currently, Daiwa forecasts that Want Want's revenue for the first half of the fiscal year ending in September 2025 will increase by 1% year-on-year, lower than the 4% and 2% growth rates in the first and second halves of 2024 fiscal year.
However, management also pointed out that benefiting from the continuous improvement of low-cost milk powder sales performance and China's cancellation of the 10% import tariff on New Zealand milk powder since January this year, the gross margin for the first half of fiscal year 2025 is expected to improve year-on-year. Considering Want Want's 6 to 9 months of milk powder inventory, Daiwa expects the cost bullish factors to continue into the second half of 2025 fiscal year, with the gross margin forecasted to rise to 47% in the first half of 2025 fiscal year, and further increase to 48.5% in the second half of the fiscal year.
